Partnership receives 120 days to make late section 754 election

Plain-English summary

A limited partnership timely filed its federal return but inadvertently omitted the written election under section 754 to adjust the basis of partnership property. The partnership represented that it acted reasonably and in good faith and that late relief would not prejudice the government. The IRS concluded that the standards in Treasury Regulation sections 301.9100-1 and 301.9100-3 were satisfied. It granted the partnership 120 days from the ruling date to file the election for the relevant taxable year and later years. The ruling did not decide whether the partnership was otherwise eligible to make the election.

Ruling snapshot

• Question: Could the partnership receive additional time to make a section 754 election that was omitted from a timely filed return?
• Outcome: approved
• Key authorities: IRC §§ 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201736004                                              Third Party Communication: None
Release Date: 9/8/2017                                         Date of Communication: Not Applicable
Index Numbers: 9100.15-00, 754.02-00
                                                               Person To Contact:
----------------------------------------                       -----------------------, ID # ----------------------
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-------------------------------------------                    Telephone Number:
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                                                               Refer Reply To:
                                                               CC:PSI:B03
                                                               PLR-103115-17
                                                               Date: June 8, 2017




LEGEND

X        =        -----------------------------------------
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State =            --------------------------------------------------------------------------------------------------
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D1        =         -------------------------------------------------------------------------------------------------
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Dear -----------------:

      This letter responds to a letter dated December 29, 2016, submitted on behalf of
X requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election under § 754 of the Internal Revenue Code
(Code).

                                              FACTS

       The information submitted states that X is a State limited partnership classified
as a partnership for federal tax purposes. X’s return for the taxable year ended D1 was
timely filed, but a § 754 election to adjust the basis of partnership property was
inadvertently not filed with the return. X represents that it has acted reasonably and in
good faith and that granting relief will not prejudice the interests of the government.

PLR-103115-17                                 2


                            LAW AND ANALYSIS

       Section 754 provides that a partnership may elect to adjust the basis of
partnership property when there is a distribution of property or a transfer of a
partnership interest. An election under § 754 applies with respect to all distributions of
property by the partnership and to all transfers of interests in the partnership during the
taxable year with respect to which the election was filed and all subsequent taxable
years.

        Section 1.754-1(b) of the Income Tax Regulations provides that an election
under § 754 to adjust the basis of partnership property under §§ 734(b) and 743(b), with
respect to a distribution of property to a partner or a transfer of an interest in a
partnership, must be made in a written statement filed with the partnership return for the
taxable year during which the distribution or transfer occurs. For the election to be
valid, the return must be filed not later than the time prescribed by § 1.6031(a)-1(e)
(including extensions) for filing the return for such taxable year.

        Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Code except
subtitles E, G, H, and I. Section 301.9100-1(b) provides that the term “regulatory
election” includes an election whose due date is prescribed by a regulation published in
the Federal Register.

       Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for regulatory elections that
do not meet the requirements of § 301.9100-2.

       Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be
granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                            CONCLUSION

       Based solely upon the facts submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, X is granted an extension of time of 120 days from the date of this letter to
make a § 754 election for its taxable year ended D1 and thereafter. The election should
be made in a written statement filed with the applicable service center for association

PLR-103115-17                                 3

with X's return for its taxable year ended D1. A copy of this letter should be attached to
the statement filed.

       Except for the specific ruling above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

      This ruling is directed only to the taxpayer requesting it. According to
§ 6110(k)(3), this ruling may not be used or cited as precedent.

        Under a power of attorney on file with this office, we are sending a copy of this
letter to X’s authorized representative.

       The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.


                                              Sincerely,

                                              Associate Chief Counsel
                                              (Passthroughs & Special Industries)



                                          By:__/s/___________________________
                                             James A. Quinn
                                             Senior Counsel, Branch 3
                                             Office of the Associate Chief Counsel
                                             (Passthroughs & Special Industries)



Enclosures (2)

       Copy of this letter
       Copy of this letter for section 6110 purposes